put is a more modest bet and pays off more modestly. Like someone selling insurance, put sellers aim to sell the premium and not get stuck having to pay out. Nevertheless, covered calls transform an unattractive options strategy naked calls into a safer and still potentially effective one, and its a favorite among investors looking for income. In this example, thats 5,000. D., is a staff writer at NerdWallet, a personal finance website.
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For example, with XYZ stock at 50, an investor could sell a put with a 40 strike price for 2, then: If the stock dips below the strike at expiration, the put seller is assigned the stock, with the premium offsetting the purchase price. Joe Kunkle is the man behind the Options Hawk brand and while he doesnt post on his blog as regularly as some others in this list, when he does post it is all super informative stuff with lots of actionable trade ideas. Most of these guys are on Twitter and Ive set up a list where you can follow them. Back to top, the long put The long put is similar to the long call, except that youre wagering on a stocks decline rather than its rise. But the strategys upside is capped, unlike a long call, and it retains more substantial downside if the stock falls. Example: XYZ stock trades at 50 per share, and a put at a 50 strike can be sold for 5 with an expiration in six months. This strategy allows an investor to continue owning a stock for potential appreciation while hedging the position if the stock falls. Ive learned a great deal from the posts Ive read so far and cant wait to dive into the rest of them! Investors also use short puts to achieve a better buy price on a too-expensive stock, selling puts at a much lower strike price, where theyd like to buy the stock.